"We've kept the promise and adopted the changes to the laws on pension and disability insurance and on income tax to exempt the holiday allowance of taxes as early as in 2019," the government wrote on Twitter.
"Every euro that employers spend on holiday allowance will be transferred to the employees, the state has given up income tax and contributions," Finance Minister Andrej Bertoncelj said.
Income tax and social security contributions will still have to be paid on the amount of holiday allowance exceeding the average monthly wage. At the moment, holiday allowance in the amount of 70% of the average monthly wages is exempt.
Slovenian employers are required by law to pay holiday allowance, while taxation in practice puts a soft ceiling on the amounts since taxes eat away at a large share of any allowance beyond what is tax exempt.
The benchmark will be data by Slovenia's Statistics Office, which publishes wage statistics on a monthly basis.
The latest available data is for January, when the average monthly gross wage stood at 1,729 euro and the average net wage at 1,116 euro.
The measure is designed to cut labour taxes and raise the disposable income of the workers who receive higher annual holiday allowance than the minimum wage – which is the lowest amount of holiday allowance the employer can pay out.
The government says this should improve Slovenia's competitive advantage, stimulate consumption and encourage companies to pay out more generous holiday allowances.
This is the first in a series of tax measures the government announced recently.
Last week, the Economic and Social Council, the country's main social dialogue forum, agreed this measure should be implemented as soon as possible, whereas the other measures will be subject to negotiations.
Bertoncelj said the government had kept its promise to sort this out as soon as possible. He expects the National Assembly will rush the bill as well since the government has proposed it be fast-tracked.
The Finance Ministry expects that the bill will reduce tax revenue by roughly EUR 90m annually, while the contributions shortfall is expected to amount to no more than EUR 2.4m.